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February 12, 2016

Termination Fees in Publishing Contracts: Why They're Not Just Bad for Authors

In the course of my work with Writer Beware, I see a lot of publishing contracts (for the most part, these are from small presses). One of the red flags I'm encountering more often these days is early termination fees: a penalty that must paid by the author if s/he wants to get out of a contract early.

A few examples of early termination clauses, taken from contracts in my possession:

The Author may terminate this agreement before the end of the term by means of a contract buyout....The Author will pay to the Publisher the sum of $500.00 (five hundred dollars) to exercise this contract buyout option. This fee must be paid to the Publisher by the Author at notification of intent to exercise the buyout option. The Author will be responsible for full payment of damages and customary legal fees as a result of legal action stemming from failure to pay this buyout clause.

The Author may petition the Publisher to terminate the Publishing Agreement at any time during the term of the Publishing Agreement, but it will cost the Author $350 fee for editing services and $100 fee for cover art services, formatting time and publishing costs, making the total fee Four Hundred Fifty dollars ($450.00).

Once a work has gone into editing and forward and the Author wishes to terminate this contract prematurely, a penalty shall be charged to the Author to cover costs of staff and artists for work already performed. This fee shall be at a minimum of $50.00 to a maximum of $1000.00 to be determined by the time spent on preparing the work for publication and money recovered from sales of the work.

Why are termination fees a red flag? Obviously they are onerous for authors, who might have good reason to want to end a contract early, and can't do so without opening up their wallets.

Of more concern is the fact that publishers may employ them abusively, holding them over the heads of unhappy writers, attempting to use them as an extra income source by offering to jettison dissatisfied authors at the slightest provocation (one publisher I know of even provides an annual "get out of jail free" period where writers can request an invoice), or terminating the contracts of writers who've pissed them off and demanding the fee even though termination wasn't the writer's decision.

I've gotten complaints about all of these. For instance, last year I heard from an author who was quoted an early release fee in the low four figures, described as a reimbursement for production costs--despite the fact that the book had been in circulation for some time and the publisher had likely made back its investment.

EPIC, an association for epublished authors, identifies termination or kill fees as a red flag contract clause--one that authors should absolutely avoid:

Most of these clauses refer to pulling a book during the middle of the contract, but some even require a kill fee paid to the publisher by the author for failing to renew the contract at its natural end. This last requirement isn't acceptable.

But termination fees aren't just bad for authors. They're bad for publishers, too.

Sure, from an honest small publisher's perspective--a publisher that isn't planning on browbeating its authors with termination fees, or using the fees to try and make an extra buck--a termination fee may seem to make good business sense. "We don't want to hold onto an unhappy author," the publisher might reason. "But we invest a lot of work in editing, designing, marketing, etc. So if we can't maximize our investment by selling the author's book for the full contract term, it's only fair that we should get some reimbursement if she decides to leave early."

Problem is, if the unhappy author can't afford the fee, the publisher is stuck with her anyway--along with, possibly, the extra resentment produced by the author's knowledge that she could have escaped if only she'd had the cash. (I've gotten many, many complaints from writers in exactly this situation.) Alternatively, if the author can afford the fee, he may see it as an easy exit, and jump ship without giving the publisher the chance to address whatever problems the author has identified--thus losing the publisher a book it might have retained if it had been able to work things out.

For publishers willing to let their unhappy authors go, it's far easier--and far more author-friendly--simply to allow authors to terminate the contract at will, without the potential complications and bad feelings of a termination fee. To protect its investment, the publisher can require a waiting period, such as one or two years, before the termination option can be invoked.

Even better, for publishers that are willing to try and resolve any problems that may arise: don't include an early termination provision at all. Impose a reasonable contract term, and stick to it. This allows the publisher the best chance of recovering its investment in a book (and hopefully making a profit), while ensuring that the author can eventually regain their rights without opening up their wallet. (Though authors take note: if the contract is life-of-copyright and not limited-term, you should always be able to revert your rights once sales fall below a stated minimum).

3 comments
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Years ago, when small e-publishers were the way to be published outside of traditional publishing, some authors decided it would be a great idea to use these publishers' editors to polish up their manuscripts before submitting to traditional publishers. They used the writer-friendly easy out of pulling their book once the book was polished and went on their way. That's why termination fees were created.

I'm sure author jerks, today, would do the very same thing to get ready to self publish.

So, yes, termination fees are a pain for honest authors, but reasonably priced termination fees do have their value.

The entire premise of contract law is the giving of something in exchange for the getting of something. So how exactly is the publishing house supposed to stay in business if it invests time, money, and resources into books that can be removed by authors at any given moment without compensation?

I can understand and champion terminating a contract at will if you're self-published because the company you do it through has no significant financial investment in your work, but even a self-publisher would likely be legally entitled to recoup a nominal fee for the early termination of a contract. It costs money to have the machines and people power necessary to make thousands (in the case of Amazon millions) of ebooks available for instant download. Customer service needs grow exponentially with each additional author, as does royalty tracking, reporting, and accounting. And that's just a few considerations within the world of self-publishing.

Full service publishing houses are businesses that provide authors not only with everything self-publishing companies do, but also with vital services they don't... services authors would have to pay others to perform if they were self-publishing (editing, artwork, a built-in customer base, etc., etc.) The goal of a publisher, just like the goal of an author, is to profit. You don't sign an author with the end goal of merely breaking even and sending him/her along their merry way; you sign an author with the end goal of profiting as much as you can off your initial investment. That's the goal of every business.

The level of entitlement being demanded by a small but vocal minority of authors is staggering as of late. I've seen authors trying to get out of contracts without compensating the pub I own state things online like, "My book has been published there for X number of years! They've profited off of it enough!" So now what? When an author decides their work has been profited off of "enough" the publisher is supposed to accept their POV as fact and tear up the contract? Business, and more importantly business law doesn't work like that. If such was the case, early investors in start-ups like Microsoft, Facebook, etc., wouldn't be legally and ethically entitled to profit sharing years after their initial investment.

A publishing house is an investor... it's the exact same principle. Microsoft and Facebook wouldn't have become Microsoft and Facebook without early investors. It amazes me that billionaires like Mark Zuckerberg & Bill Gates (who have a LOT more profit they're legally and ethically bound to share with early investors) have no trouble remembering who gave them their start and how badly they wanted said start at the time, yet a subset of authors would rather drive their former publishers out of business than share profit with them.

The worst part about this post is you aren't just telling publishers who've profited from Books X, Y and Z to let authors back out of their contracts without financial compensation, but you're also telling the pubs who've lost money on books A, B and C to do the same thing. Whether it's a profit, loss, or break even situation, you're giving advice that has no basis in contract law and will therefore do nothing but give authors unrealistic business expectations when reading and negotiating contracts. If an author wants to remain non-committal so they can do what they want with their books when they want to do it, they have a variety of self-publishing avenues to choose from. Full service publishing houses don't work like self-pub companies though... they can't and stay in business.

As I've stated in my post, publishers that don't want to let authors back out of their contracts have a very simple solution for the dilemma you outline: don't include any early termination provisions at all. Impose a reasonable contract term, and stick to it. That way, the publisher has a reasonable amount of time to recoup its investment and hopefully make a profit, while the author is assured that they will eventually be able to regain their rights.

I agree completely that publishers need to be able to recoup their investments in the books they publish. I just don't agree that imposing early termination fees is a good way to accomplish that.